Greece: GAAR rising: First administrative rulings in the spotlight

October 26, 2017

Greece has embraced the European Commission's recommendation (on December 6 2012) for an action plan to strengthen the fight against tax fraud and tax evasion, which, among others, includes the implementation of a general anti-abuse rule (GAAR). Namely, by virtue of Article 38 of the Greek Tax Procedures Code (i.e. L. 4174/2013), a domestic GAAR has been introduced into the Greek fiscal landscape, in force as of January 1 2014, according to which the tax authorities may disregard any artificial arrangement or series of arrangements aiming to avoid taxation and lead to a tax advantage.

Considering the aggressive stance generally adopted by the Greek tax administration during recent tax audits, the first GAAR footprints have appeared in the decisions issued from the dispute resolution department (DRD), before which the taxpayer may challenge a tax assessment note, prior to addressing the dispute before the administrative courts.

In light of the above decisions from the DRD, both referring to stamp duty assessments on loans, the Greek tax administration denied the stamp duty exemption provided on the basis of the "territoriality" principle whereby loans signed and executed outside of Greece would not fall within the scope of the Greek Stamp Duty Code. The above conclusion was drawn by claiming the application of the GAAR.

Specifically, up to now, a loan agreement entered into between a Greek and a foreign entity may be exempted from stamp duty on the basis of the "territoriality" principle, provided that certain conditions were cumulatively met (i.e. signature of the loan outside Greece, along with the loan's "execution" outside Greece, which effectively means that the respective payments should be exclusively realised through foreign bank accounts). Namely, the Greek borrower entity should maintain a foreign bank account, via which all cash flows relating to the said loan (i.e. the deposit of the loan amount, payment of interest and repayment of the loan) are affected.

Nevertheless and despite stamp duty levy being of a typical form-over-substance nature, these new rulings invoking the GAAR's application and following a substance-over-form approach concluded that the intermediation of a foreign bank constitutes an artificial arrangement whose goal has been to avoid stamp duty imposition. The Greek tax administration has disregarded the existence of the foreign bank account of a Greek company, since the loan has been used for the settlement of local liabilities, e.g. in one case it was even used for the payment of the Greek company's stamp duty liability arising from a previous tax audit.

Lastly, the domestic GAAR's application has not yet been tested before the Greek courts. One could at least hazard a guess under the purposive interpretation adopted by the courts until now, but the GAAR might leave taxpayers without a map or compass. If one claims that the map based on previous case law was very changeable and sometimes unpredictable guide, almost inevitably the first fundamental question arises: Does the domestic GAAR provide adequate safeguards for the taxpayer?